100% Mortgage

[Old Greg]

A couple of things:
1. You're a contractor, you should have some savings building up in a warchest, so you should be able to put some sort of deposit down
2. You're a contractor so not every lender will offer you a mortgage.

Now, once we get past those, the next thing to do is run the numbers.
https://www.moneysavingexpert.com/mortgages/best-buys

For the purposes of this experiment, I've gone for a £300,000 house on a 25 year mortgage.
100% mortgage, best deal will cost £16,610 in the first year @2.75%, £1383 per month
90% = £13,410 @1.64%, £1097 per month
80% = £11,430 @1.44%, £953 per month

...and what does that really mean? Well, if the interest rates stayed the same throughout the life of the mortgage:
100% mortgage total repayable = £414,900
90% = £359,100 (including the deposit) - that's saving you £55,800
80% = £345,900 (including the deposit) - that's saving you £69,000

But if interest rates go up, which given where they are seems extremely likely, then so will your repayments. On the first one, your payment would go up £160 per month for a rate rise of 1%. The same rise on the second one would mean £133 extra while on the third it's £117 extra

Nobody stays on a 100% mortgage interest rates for 25 years. You build up the equity through repayment and (usually) house price increase and then remortgage to a lower rate.

[pr1]

You have made a very good point if the person has a permanent job and is able to get an offer of a 100% mortgage and has some savings.

...or, your reply is not something that matches the requirements of the OP, based on what they have told us. (A standard trait on CUK "You have asked a question I can't answer so I will ignore it and reply with a completely unrelated response")

OP asked for pros/cons, you tried to outline and emphasise a perceived con, I highlighted the hundreds and thousands of pounds you were missing from your calculations

[Power Mortgages Ltd]

As mentioned earlier on in the thread, the '100%' mortgages out there at the moment are not true 100% mortgages. The bank/building society will lend you 100% but it normally has to be backed by a 10% - 15% deposit into a bank account by a relative (normally bank of Mum and Dad). The idea being that relative puts in 10% - 15% of their hard earned money into a savings account which they normally cannot touch for a certain period of time (2 years in most cases I believe) and the lender then lends 100% to the borrower. If the borrower defaults then the lender has claim to the savings the relative has placed in the savings account to recoup their losses. If after the 2 years all is well and payments have been made on time and are up to date, the relative can then withdraw their savings. At that stage (or the point the borrower's fixed rate ends if that is later down the line) assuming property prices have increased slightly and given that with a repayment mortgage the borrower would have chipped away at the original sum they borrowed, you would hope/expect the loan to value to have come down slightly, possibly to 95% where there could be other options to remortgage to (although not very many at that loan to value).


I do not personally see many, if any true 100% mortgages coming back into the fray at this point in time given the uncertainty of the economy due to Brexit. You already have some Banks/Building Societies reporting property prices have dropped recently so to be handing out 100% mortgages in a market where property prices could be falling is very, very risky.


Best advice as previously mentioned by a few other posters would be to save up a 5% deposit (remembering other fees like stamp duty - if applicable, legal fees for buying and valuation fees) then go for a 95% mortgage which are available as a contractor.


I would seriously avoid the suggestion of relinquishing control of your company down to below 20% of the shares and applying as someone who is employed with 3 months payslips set at a figure of your choosing. As pointed out by another poster, that is effectively committing mortgage fraud and if the lender were to become suspicious of this you could find yourself in a position where not only they decline the lending now but fraud markers are placed against your name which all lenders share and your ability to obtain mortgage funding at any stage in the future would become seriously impaired. Just because a couple of people have got away with it, it doesn't mean to say you will.

Lenders will often accept gifts from immediate family members to contribute toward the deposit too so if a parent, sibling, grandparent, aunty or uncle can gift you the money toward the deposit, you can always look to proceed sooner rather than later too.

Help to Buy as previously mentioned is also another option but only on a new build property purchased directly from the builder/developer and the property has to be available under the Help to Buy scheme (the builder will tell you if it is or not). You will still need a 5% deposit which can again be gifted to you by a relative but the Government will contribute a further 20% equity loan to go toward your deposit so the lender only needs to provide you with a 75% mortgage. The advantage here for you is obtaining a cheaper interest rate and lower payments on a mortgage and being able to buy a new build property with only a 5% contribution of your own (ordinarily lenders require a 15% deposit in most instances if buying a new build property without Help to Buy assistance).

The 20% equity loan is interest and repayment free for the first 5 years, after which you start making payments on the loan but only the interest at a nominal rate of 1.75% (which subsequently increases by inflation + 1% each year thereafter). You can pay back the 20% at any stage in the term of the loan either through remortgaging, savings or sale of the property but a point to consider which alludes a number of people is that the Government effectively own a 20% stake in your property so when it comes to repaying them, it is not simply the original £ value you were given by them, it is 20% of whatever the property is worth at the point of settling the loan. Therefore if you purchased for £100,000 and the equity loan was £20,000 and advance 10 years and the property is now worth £200,000, the 20% you would owe them to redeem would have also doubled to £40,000.

Ben